A 2019 study by Blockchain Capital claimed that 11 percent of Americans own Bitcoin and 89 percent are aware of it. A different 2019 survey put BTC ownership at 6 percent of Americans. So why don’t we see widespread adoption of blockchain-powered payments at coffee shops, groceries, and eCommerce sites?
In this article we explore the key reasons below. Among these is that Bitcoin and other digital coins are different from fiat cash. Payment mediums need to be stable whereas cryptos can be risky; fluctuate significantly in value; are resistant to third-party mediation; and tricky to regulate across different jurisdictions and disparate monetary systems. They also operate outside protections from governments and central banks. Here are challenges to mainstream cryptocurrency adoption.
Education and reputation are important.
Cryptocurrencies received plenty of media hype in the run-up to Bitcoin’s $20,500 valuation in early 2018. But the press coverage was not particularly detailed or instructive.
Rather, busy journalists (many of whom were not too informed about the emerging industry) largely reported on the price frenzy and subsequent crash. During the 2018 bear market, BTC lost more than 85 percent of its value. And mainstream interest has since waned. (Bitcoin’s 2020 recovery has since reduced the loss from peak price to just 55 percent instead of 85 percent.)
A primary hurdle to global adoption is education and reputation.
On education, most consumers are still unaware of many aspects of cryptocurrency technology. They’re casual fans; not hardcore supporters. When it comes to money and assets, people aren’t embracing what they don’t understand.
Thus, there’s a need among blockchain companies, crypto enthusiasts, and libertarian technologists to continue to educate the masses about Bitcoin, Ethereum, and other coins and their applications.
They also need to inform the world about the disruptive tech that underpins digital money (i.e., blockchain), as well as the many advantages of non-sovereign, global monies. Governments reduce the value of fiat by printing it to eventual death (think ancient Rome’s denarius coin) whereas most cryptos have limited supply and are anti-inflationary.
On reputation, hackers, scammers, pump-and-dump fraudsters, thieves, and other bad actors have tarnished the nascent industry. Consumers get the impression that in this new Wild West, they can get robbed by anonymous outlaws.
A few bad apples have stained everyone’s collective reputation. It’s tough to convince households to invest thousands of dollars in tokens and coins when their funds can be stolen at an exchange, phishing website, or through crypto-jacking.
Fiat convertibility helps for payments.
In 2018, global payments rose 6 percent to $1.9 trillion. Electronic fiat payments are increasing worldwide but these operate within sovereign monetary systems. Most cryptocurrency projects seek to challenge the status quo while creating new ecosystems that are totally independent of governments and central banks.
Some insiders believe that’s unrealistic: they argue a better approach is to integrate with legacy infrastructure. To leverage the existing banking architecture and gain consumers’ trust and adoption.
“Wall Street now recognizes cryptos as a new asset class but it doesn’t have to replace fiat but rather complement it through frictionless spending and convertibility,” says Danial Daychopan in a recent interview. He’s the founder of Plutus, a finance app that allows consumers to spend cryptos and fiat through a Visa debit card, which is coupled with a crypto-back rewards program.
Daychopan’s company lets consumers swap between fiat and crypto assets through a peer-to-peer exchange. While this feature is important, partnerships with established companies can be a prudent approach to risk management in the Wild West of digital coins and tokens.
"Traditional financial systems have flaws but they also bring huge advantages like worldwide adoption, ease-of-use, and fast payment that many hardcore crypto enthusiasts tend to neglect,” says Daychopan. “Cryptos can leverage proven infrastructure to make spending easy, normalized, frictionless, and accepted by merchants everywhere.”
A partnership with global players like Visa can make transactions secure and allay concerns of potential misconduct. This June, German fintech company Wirecard said it was missing $2.1 billion. The scandal has forced wallet providers like TenX and Crypto.com to issue refunds to holders of crypto-denominated charge cards.
Volatility is viewed as risky
Cryptos’ total market capitalization has rebounded 37 percent year-to-date in 2020. The market cap now stands at nearly $260 billion and the industry has gained new Wall Street investors who boost social proof. More professional traders have also reduced Bitcoin’s volatility compared to wilder price fluctuations in the past.
Still, consumers see volatility as risky and uncertain when it comes to payments. The pandemic recession has also made millions of Americans risk-averse as they save more cash to cover expenses and emergencies.
“Volatility makes cryptos an investment-type of purchase and many coins behave like a fluctuating asset,” says Jasper Tay, co-founder of Plutus. “Cash is stable which is best for payments. But it’s not very advantageous to hoard cash either when banks aren’t offering interest on deposits. Moreover, the Federal Reserve is printing record amounts of fiat which will diminish their long-term purchasing power.”
The long-term rise of major coins like Bitcoin and Ethereum gives consumers a way to earn gains from their money while spending it through platforms like Kava that Platus is looking at.
(Disclaimer: The author works at KAVA)
Unfortunately, too many people are financially illiterate and don’t understand the negative implications of the Fed’s quantitative easing, but for those that are financially literate, well, they're using Kava to bridge their major crypto holdings to access Kava's lending platform.
Cryptos is a hedge option that is ignored, which goes back to the education hurdle, but ultimately the financially literate who are Bitcoin bulls need financial services on their Bitcoin. Users want to pay their bills in USD without having to sell their Bitcoin. Kava, my employer, is the bridge to decentralized finance on Bitcoin.
Compliance across borders is complicated
Financial services is the most regulated industry and it’s wreaking havoc on compliance when it comes to cryptos. Different agencies within the U.S. government cannot agree on how to regulate the nascent technology. And multiple jurisdictions outside the U.S. bring extra layers of complexity, cost and, burden.
“It’s prudent to adapt to the existing regulatory environment and that means blockchain companies can solve compliance and interoperability issues through partnerships,” says Danial Daychopan. “In our case, we partnered with Visa to provide a debit card that enables crypto owners to convert assets to fiat and vice versa.
Payments require a practical approach for adoption, and crypto projects shouldn’t behave like lone wolves. The existing infrastructure can function as a bridge to a new world.”
Plutus is an up and comer. They have some catching up to do if they are to compete with the likes of Kava, Compound, and Maker, the first-mover decentralized financial platforms leading the way today, who are enabling users to lock up their crypto as collateral for loans in fiat currencies.
For example, Kava, the first multi-chain lending platform has millions in assets already and plans to further accelerate its adoption announcing today that the network is compensating loan creators on its platform every Wednesday at 14:00 UTC with 74,000 KAVA tokens - roughly a quarter-million dollars when the KAVA token is at $3 - on top of a high yield savings accounts offering users up to 11.8% APY.
The founder and CEO, Brain Kerr, who is also my boss because I work as a content manager for Kava, told me that “Kava aims to provide on-demand loans to anyone, anywhere, and anytime they need it.
Whereas DeFi is taking off in the Ethereum ecosystem, it’s unable to serve the majority of the crypto-space. Kava aims to open the doors of DeFi to the major cryptocurrencies. With the new incentive plan announced today, we expect the supply of assets on Kava to dramatically increase resulting in more borrowing on the Kava platform.”
(Disclaimer: The author works at KAVA)